Introduction
An owner of such a significant asset such as in ground asset
needs to establish a strong relationship with a ...
Mineral Valuation - Appraisal Services
    Appraisal, or valuation, is defined by all of the professional appraisal organi...
Minerals-Mining Consulting Services
    Appraisers are legally regulated under federal and state law by USPAP which consid...
Securities Analysis:

    Portfolio Analysis:

    Mineral Economics Studies:

    Mine Economic Studies:

    Economic Ch...
Choosing a Minerals Appraiser
    There are substantial differences between conventional real estate - single family resid...
Both the American Institute of Minerals Appraisers and the American Society of Appraisers
    require applicants to submit...
(8) Are you willing to sign explicit appraisal and confidentiality agreements?

    It is always a good idea to obtain a w...
Client Education Minerals Appraisal
       The purpose of this area is to provide some background information to potential...
The IRS & Mineral Property Appraisal / Mining Business Valuationxx


IRS Rules For Minesxxi                          IRS R...
Mineral Appraisal-Valuation Reference Material


    Mineral Valuation-Appraisal Reading List - Books and Articlesxxx
    ...
Mineral Valuation-Appraisal Related Links
    Mining Information Sources

    CoalCamp

    MiningUSA

    Robertson Info-...
The next step in the valuation process, after carefully defining the assignment, is to gather the data necessary to conduc...
Inventory summary, with any necessary information on inventory accounting policies

    Synopsis of leases for facilities ...
Any contingent or off-balance-sheet liabilities (pending lawsuits, compliance requirements, warranty or other product
    ...
largest case on record, but only one of many incidents of miners and investors falling victim to scams, lousy advice,
    ...
It is important not to forget the practice of deliberately salting, or adulterating, samples. Ingenious ways have been
   ...
500 tons per day, mills nothing, and the dreams of many become a nightmare. Even when good ore exists, the treatment
    f...
professional engineer, whether a geologist, mining engineer, or metallurgist. Other professional assistance such as
    fi...
both mining and refining the ore. Some investment schemes allow you to make monthly installment payments to the
    mining...
Don't be taken in by slick brochures and reports by so-called experts. The claims made in the brochure are only as good
  ...
These claims are false. There is no shortage of indium, and there are no forces that are driving up the price. Foreign
   ...
magnified. During recent years, many consumers who have invested in these programs have lost a high percentage of
    thei...
vii
                                     "Gold Is Where You Find It" (But, Be Sure You Really Found It)

                 ...
Let's analyze this critical concept further. Natural processes recurring over the history of the earth have caused some
  ...
professional is that the professional knows how to quickly evaluate and verify or discredit the claims. He does this by
  ...
group is not. The researchers are looking for differences between the two groups which are unambiguously attributable to
 ...
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Minerals & More
Upcoming SlideShare
Loading in …5
×

Minerals & More

3,383 views

Published on

Minerals & More Article (by Mr. Humphrey)

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
3,383
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
35
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Minerals & More

  1. 1. Introduction An owner of such a significant asset such as in ground asset needs to establish a strong relationship with a consulting firm specializing in valuation, appraisal, and evaluation of mineral properties and mining operations. Mineral property owners, mining operators, attorneys, accountants, and investors have to rely on such consultants’ appraisals, mineral valuation, geological, and mining services for answers to questions about mineral property and mining business valuation, mineral properties and rights, mining operations and interests, leases and royalties issues. These consultants are generally independent and committed to providing you with practical, time, and cost effective resolution to your mineral property and mining business concerns. Such consultants are your resource for solid mineral property and mining business valuations. Ovadya Funding Group International, Inc. Copyright 2007 1
  2. 2. Mineral Valuation - Appraisal Services Appraisal, or valuation, is defined by all of the professional appraisal organizations and regulatory agencies as the act or process of estimating a value for some type of property in an unbiased manner and as a disinterested third party, based on information obtained from the marketplace for that particular kind of property. Appraisers normally make distinctions among the terms value, price, and cost. The term price usually refers to a sale or transaction price and implies an exchange; a price is an accomplished fact. The term cost is generally used by appraisers in relation to production, not exchange; cost may be either an accomplished fact or a current estimate. Value, for appraisal purposes, is commonly defined as the monetary worth of a property, good, or service to buyers and sellers at a given time. For common stocks, bonds, financial instruments, and commodities that are listed on free and open exchanges and have thousands of trades every day, cost, price, and value are essentially the same thing and can be readily determined almost instantaneously. The shares of private companies and individual mineral properties, mineral interests, and mineral production royalties, on the other hand, are very infrequently traded and the actual selling price may not be readily available or easily determined. Mineral property appraisal or mining business valuation involves selective research into appropriate mineral property, mineral product, and mining company markets; collection and verification of relevant data and information; analysis of this value related data and information; and, the application of mineral industry knowledge, experience, and judgment to develop a credible estimate of the value of the whole, or some specific interest in, mineral property or mining business which reflects all pertinent market evidence. You should choose a qualified mining geologist, as by its very nature, the appraisal of mineral properties and the valuation of mining businesses requires a material and significant application of and reliance on geologic, mining, mineral processing, and mineral product markets research, knowledge, and experience, in addition to conventional real estate appraisal and business valuation knowledge and experience. Ovadya Funding Group International, Inc. Copyright 2007 2
  3. 3. Minerals-Mining Consulting Services Appraisers are legally regulated under federal and state law by USPAP which considers three forms of appraiser engagement by a client: appraisal, review, and consulting. Appraisal is the act or process of estimating value and should be used whenever the appraiser could be perceived as an independent and disinterested party. Review is the act or process of critically studying a report prepared by another. Consulting is the act or process of providing information, analysis of data, and recommendations or conclusions on diversified problems, other than estimating value. Differentiation among these activities depends upon the purpose and intended use of the results. USPAP recognizes two types of consulting engagements: (1) performing an impartial consulting service as a disinterested third party that responds to the client's stated objective and (2) performing a consulting service that is intended to facilitate the achievement of the client's objective. If third parties, or the public, would reasonably perceive an appraiser to be acting as a disinterested, objective third party, that is enough to bar the appraiser from acting as an advocate for the client in that particular situation. If a person could be reasonably perceived by others to be acting as a disinterested third party, then the assignment must be performed with impartiality, objectivity, and independence. In either event the appraiser must clearly disclose which role is being performed for the client. USPAP identifies four defined activities as consulting: market analysis, feasibility analysis, and cash flow/investment analysis. Market Analysis: In conventional real estate work, market analysis is the study of market conditions for a specific type of property. In appraising mineral properties market analysis must be expanded to include the markets for the mineral products that are expected to be produced from a mineral property. Feasibility Analysis: Is a study of the cost-benefit relationship of an economic endeavor. Cash Flow Analysis: Is a study of the anticipated movement of cash into and out of an investment and is closely related to Cash Budget Analysis. Investment Analysis: Is a study that reflects the relationship between acquisition price and anticipated future benefits of an investment. Because USPAP defines any activity other than an estimate of value as consulting some of the commonly performed mineral property or mining business consulting services are: Highest and Best Use Analysis: v current/interim use. Physically Possible, Legally Permissible, Financially Feasible, and Maximally Productive (optimal/satisfying) Land Utilization: Zoning Analysis: Financing Analysis: Accounting/Tax Analysis: Ovadya Funding Group International, Inc. Copyright 2007 3
  4. 4. Securities Analysis: Portfolio Analysis: Mineral Economics Studies: Mine Economic Studies: Economic Change Analysis: Breakeven Analysis: Productivity Studies: Availability/Utilization Analysis: Competitive Position Studies: Porter's 5-Forces Transportation Studies: Royalty, Joint Venture, or other Interest Analysis: Risk Analysis - Geologic, Technical, Economic, Legal, Socio-Political: Four Forces + Mineral Resource/Reserve Estimation, Review, or Audit: General or Specific Due Diligence: General or Specific Geological Analyses: Mining Geology Ovadya Funding Group International, Inc. Copyright 2007 4
  5. 5. Choosing a Minerals Appraiser There are substantial differences between conventional real estate - single family residences, apartment houses, and downtown commercial office buildings - and mineral property appraisal. Mineral properties are a unique combination of geology, land, property rights, and mineral markets, possessing special attributes and characteristics that conventional real estate appraisers are normally not aware of. A mineral property is a location specific and dependent, special-purpose, limited-market property, and to properly perform an appraisal or evaluation of a mineral property and to communicate the results requires an appraiser with specialized knowledge, skills, and abilities. Acquiring the necessary geologic, mining, minerals industry and appraisal competency is a long and arduous process, but it is absolutely essential for increasing client and third party confidence and reducing uncertainty in the results. Questions for screening prospective minerals appraisers: Any appraiser you intend to engage for performing an appraisal of your mineral property or mining business should be able to answer these questions to your satisfaction. Listening carefully to the answers should help guide you in your selection. (1) What percentage of your time is devoted to the appraisal of mineral properties and mining businesses? Ideally, the appraiser would be performing only mineral property appraisals and mining business valuations, but the percentage of minerals appraisals should at least be greater than 50%. Some companies may be more interested in property or business brokerage, mining and processing equipment sales, private lending or investment schemes, or other non-valuation activities and may be using their appraisal services only as a lead-in for these activities. (2) How long have you been appraising mineral properties and mining businesses? You want a minerals appraiser with a minimum of five years experience actually appraising many different kinds of mineral properties and mining businesses for a broad variety of clients and for many different purposes. A conventional real estate appraiser who normally appraises houses or shopping centers would not have the required geologic, mining, and mineral marketing skills necessary for a credible appraisal. A typical geologist or mining engineer may only be capable of telling you how many tons you have because he does not understand the requirements for bank lending, estate and gift taxation, or legal proceedings such as business dissolution, divorce, or condemnation. (3) Are you a Certified or Designated member of the American Institute of Minerals Appraisers (AIMA) and/or the Mines and Quarries discipline of the American Society of Appraisers (ASA)? Are you current with your organization's Continuing Professional Development and Recertification requirements? These are the only two professional appraisal organizations in the United States that certify or designate members as an appraiser with a specialty in appraising mineral properties or valuing mining businesses. Both of these organizations require their designated members to possess an appropriate mineral industry college degree such as geology, mining engineering, metallurgical engineering, mineral economics, or accounting. In addition they require at least five years of full- time progressively more responsible professional minerals appraisal experience during which full competence has been demonstrated in the application of professional principles and methods involving the understanding of the appraisal approaches utilized in the market for valuing mineral rights and properties and mining businesses interests. Ovadya Funding Group International, Inc. Copyright 2007 5
  6. 6. Both the American Institute of Minerals Appraisers and the American Society of Appraisers require applicants to submit actual appraisal reports for peer review of their work product in order to establish the required knowledge and experience requirements. The American Society of Appraisers also requires its applicants to complete a comprehensive examination covering both minerals and appraising knowledge. The American Society of Appraisers also requires it members to complete 100 hours of continuing education in their area of specialization every five years. (4) Are you a Certified General Real Property/Real Estate Appraiser in your state of residence? What is your license number? All states require real estate or real property appraisers to be certified as a general appraiser under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 in order to appraise property for lending by a bank. Some states require this certification for any and all appraisals of real estate and interests in real property. (5) Are you a Registered Professional Geologist or Mining Engineer in your state of residence? What is your license number? As of early 1998, 22 states require some form of registration, certification, or licensing of persons performing geologic services for the public according to the National Association of State Boards of Geology (ASBOG). All states require registration as a Professional Engineer, but not all states recognize engineering specialties such as Mining Engineer, Geological Engineer, or Metallurgical Engineer. For bank lending purposes and certain legal proceedings some states may have a requirement for licensing or registration as both an appraiser and a mineral industry professional. (6) Are all of your mineral property appraisals and mining business valuations performed and reported in accordance with The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice (USPAP)? Many otherwise competent mining engineers or geologists may be able to provide you with useful information about mineral resource potential, mineable reserves, or expected cash flows, but they are not normally aware of such appraisal issues as highest and best use, encumbrances, partial interests, comparison to sales of similar mineral properties, and other USPAP requirements. The Appraisal Foundation has been authorized by the US Congress as the organization responsible for establishing real property appraisal standards and appraiser qualifications. The Internal Revenue Service and other taxation and financial accounting authorities also have specific requirements relating to the appraisal of mineral properties and the valuation of mining businesses. (7) Have you performed appraisals on mineral properties or mining businesses that are like mine for similar purposes and uses? Do not be too surprised if a minerals appraiser has not performed an appraisal on a property exactly like yours or for exactly the same reasons. No minerals appraiser has appraised every type of mineral property. There are so many different kinds of mineral properties and mining businesses and reasons that they may be appraised that absolute agreement with yours may be asking too much. What you want is a minerals appraiser who has appraised a broad cross section of different types of mineral properties and mining businesses for a variety of purposes and who will be open and honest with you about his education and experience. Some minerals appraisers tend to specialize in certain types of mineral properties and may be reluctant to take on an assignment that concerns a different type of property and some are unwilling to perform appraisals related to litigation. Ovadya Funding Group International, Inc. Copyright 2007 6
  7. 7. (8) Are you willing to sign explicit appraisal and confidentiality agreements? It is always a good idea to obtain a written agreement of some form, from an engagement letter to a detailed contract, for the performance of a minerals appraisal or consulting engagement. At a minimum this agreement should specify the mineral property to be appraised or the mining business interest to be valued, the scope of the work necessary to complete the minerals appraisal engagement, the purpose and intended use of the appraisal, any special conditions that may exist, along with an estimated completion time, working days and calendar days, and cost and payment terms. It is also a good idea to use an explicit confidentiality agreement because the confidentiality requirements of USPAP are significantly different than most mineral property owner's expectations. Any agreement should also specify who owns and has control of the appraisal report. This can be an important consideration for minerals appraisals performed for litigation purposes. (9) How long do you think this assignment should take and how much will it cost? The prospective minerals appraiser probably cannot give you a highly accurate time and dollar answer without knowing more about the type of mineral property, its stage of development, and the purpose and intended use of the appraisal, but he should be able to provide you with a range of completion times and professional fees and business expenses that similar engagements have required. (10) Will you give me the names and phone numbers of three clients for whom you have performed similar minerals appraisals? Follow up and call each one. (11) Will you give me the names of other minerals appraisers who also perform appraisals of the type and complexity I need? This may be asking too much, but at the least the prospective minerals appraiser should be willing to provide you with a contact name and phone number of the two nationally recognized minerals appraisal professional societies. American Institute of Minerals Appraisers: 303-443-2209 American Society of Appraisers: 800-ASA-VALU (800-282-8258)/703-478-2228 (12) What types of information will you need form me in order to successfully complete this mineral property appraisal or mining business valuation engagement? i The Mining Company Valuation Data Requirements pages that are part of this document will provide you with a good idea of the types of data that will normally be required. Ovadya Funding Group International, Inc. Copyright 2007 7
  8. 8. Client Education Minerals Appraisal The purpose of this area is to provide some background information to potential and current clients, as well as other interested readers, about the general topics of mineral valuation- appraisal, geology, mining, mineral processing, mineral products and their markets, mining properties in general, and appraisal processes and practices. It is hoped that this information will give readers a better understanding of the role of minerals in the economy and an improved foundation on which to build specific questions they may want answered by a qualified minerals appraiser. A list of available topics follows. General Mining and Mineral Scamsii Mining Scamsiii Dirt Pile Scamsiv Indium & 'Strategic' Metals Scamsv Leveraged Precious Metals Scamsvi Gold Is Where You Find Itvii General Mineral Appraisal - Valuation Material What Is Mineral Appraisal-Valuation?viii The Mineral Valuation Process - Simplifiedix Mineral Product Market-Based Mineral Property Categorizationx USPAP/FIRREA & Mineral Property Appraisalxi Accounting For Mineral Reservesxii Mining Myths and Factsxiii Mineral Royalty Based Financingxiv Mineral Production Royaltiesxv Licensing: Mineral Appraisal/Mining Geologyxvi Common Minerals and Their Usesxvii In One Dayxviii Common Minerals & Their Usesxix Ovadya Funding Group International, Inc. Copyright 2007 8
  9. 9. The IRS & Mineral Property Appraisal / Mining Business Valuationxx IRS Rules For Minesxxi IRS Regulations Section 1.611-2(c), (d)xxii Mining & IRS Revenue Ruling 59-60xxiii Mining & IRS Revenue Ruling 68-609xxiv Mining & IRS Revenue Ruling 77-287xxv Mining & IRS Revenue Ruling 83-120xxvi Mining & IRS Revenue Ruling 93-12xxvii Mining & IRS Revenue Procedure 79-24xxviii Internal Revenue Manual - Valuation of Real Propertyxxix Ovadya Funding Group International, Inc. Copyright 2007 9
  10. 10. Mineral Appraisal-Valuation Reference Material Mineral Valuation-Appraisal Reading List - Books and Articlesxxx Mineral Appraisal-Valuation Reading List - Guidelines & Standardsxxxi Mineral Valuation-Appraisal Reading List - Periodicalsxxxii General & Specific Assumptions & Limiting Conditions-Part 1xxxiii General & Specific Assumptions & Limiting Conditions-Part 2xxxiv General & Specific Assumptions & Limiting Conditions-Part 3xxxv Mining Business Valuation Data Requirementsxxxvi Ovadya Funding Group International, Inc. Copyright 2007 10
  11. 11. Mineral Valuation-Appraisal Related Links Mining Information Sources CoalCamp MiningUSA Robertson Info-Mine United States Geological Survey Appraisal Information Sources (follow the links below) American Institute of Minerals Appraisers American Society of Appraisers The Appraisal Foundation Appraisal Institute The Appraisal Subcommittee National Association of Independent Fee Appraisers Mineral Industry Publications Mining Business Digest Pit and Quarry Magazine Aggregates Manager Magazine International California Mining Journal Mineral Industry Companies Construction Market Research i Mining Company Valuation Data Requirements Ovadya Funding Group International, Inc. Copyright 2007 11
  12. 12. The next step in the valuation process, after carefully defining the assignment, is to gather the data necessary to conduct the assignment. These data can be categorized into three groups: Company-specific data. Data about the company's industry and economic environment. Data about the subject property's market (market for ownership interests in the subject company). The company-specific data are gathered from the subject company in written form and during site visits and interviews with people knowledgeable about the company. The gathering of this information is the subject of this and the next chapter. The industry and economy data often can be provided by the subject company and can be gathered from publicly available sources. This is the subject of Chapter 6. Data about the market for ownership interests in the subject company include information about changes of ownership of competitors, about guideline company transactions, and about premiums and discounts that might apply to the subject property. These two categories of information gathering are covered in subsequent chapters in Part III. The manner and sequence in which the data are gathered are important only to the extent that the process be complete and efficient. For example, supporting analysts may be collecting industry, economic, rate of return, and guideline transaction information at the same time that the principal analyst is working directly with the management of the subject company. In any case, it is important to convey a sufficient overview of the company and the assignment to all valuation team members at an early meeting so that all the analysts will be in a position to recognize important data as they proceed on the project. If time allows, information gathered should be reviewed before the visit to the company so as to focus the interviewing process on the most essential factors that affect the value of the company, thereby minimizing the inconvenience of management interviews and also maximizing the productivity of the site visit. Some of the information necessary to conduct the business valuation will need to be obtained through interviews with company management. Sometimes, however, the analyst merely inspects voluminous or highly sensitive documents and gets copies only of the information necessary to perform the assignment. Written company-specific information that is generally used in business valuations is presented in Exhibit 4-1. This list is generic. Not every item on the list will be required for every appraisal, and in many circumstances, documents not listed must be reviewed. Working with this list, nevertheless, will assist the analyst in developing a subject-company-specific information request list. It will also be helpful to company officials and attorneys in the planning stages of a potential valuation engagement. Preliminary Documents and Information Checklist for the Business Valuation of a Typical Corporation Financial Statements for Typical Corporation Balance sheets, income statements, statements of changes in financial position, and statements of stockholders' equity for the last five fiscal years Income tax returns for the same years Latest interim statements and interim statements for comparable period(s) of previous year Other Financial Data Summary property, plant, and equipment list and depreciation schedule Aged accounts receivable summary Aged accounts payable summary List of marketable securities and prepaid expenses Ovadya Funding Group International, Inc. Copyright 2007 12
  13. 13. Inventory summary, with any necessary information on inventory accounting policies Synopsis of leases for facilities or equipment Any other existing contracts (employment agreements, covenants not to compete, supplier agreements, customer agreements, royalty agreements, equipment lease or rental contracts, loan agreements, labor contracts, employee benefit plans, and so on) List of stockholders, with number of shares owned by each Schedule of insurance in force (key-person life, property and casualty, liability) Budgets or projections, for a minimum of five years List of subsidiaries and/or financial interests in other companies Key personnel compensation schedule, including benefits and personal expenses Company Documents Articles of incorporation, bylaws, and any amendments to either Any existing buy-sell agreements, options to purchase stock, or rights of first refusal Franchise or operating agreements, if any Other Information Brief history, including how long in business and details of any changes in ownership and/or bona fide offers recently received Brief description of the business, including position relative to competition and any factors that make the business unique Marketing literature (catalogs, brochures, advertisements, and so on) List of locations where company operates, with size and recent appraisals List of competitors, with location, relative size, and any relevant factors Organization chart Resumes of key personnel, with age, position, compensation, length of service, education, and prior experience Personnel profile: number of employees by functional groupings, such as production, sales, engineering/R&D, personnel and accounting, customer service/field support, and so forth Trade associations to which the company belongs or would be eligible for membership Relevant trade or government publications (specially market forecasts) Any existing indicators of asset values, including latest property tax assessments and any appraisals that have been performed List of customer relationships, supplier relationships, contracts, patents, copyrights, trademarks, and other intangible assets Ovadya Funding Group International, Inc. Copyright 2007 13
  14. 14. Any contingent or off-balance-sheet liabilities (pending lawsuits, compliance requirements, warranty or other product liabilities, estimate of medical benefits for retirees, and so on) Any filings or correspondence with regulatory agencies Information on- prior transactions in the stock or any related party transactions When asking for historical financial statements on the subject property, one should endeavor to study statements during a relevant period. The most common period of such study is five years. However, conceptually, the relevant period covers the most recent time period immediately before the valuation date during which the statements represent the company's general operations. ii This portion of the document is designed to provide the reader with some elementary background information about various methods employed by con men to separate an investor from his money. Shady investment deals in mineral property, 'strategic' or precious metals, mining interests, and mining company shares are essentially no different than scams associated with any other investment vehicle. Mining Scams is a copy of consumer information presented by the Arizona Department of Mines and Mineral Resources and is presented in the hope that it may assist the reader in making a more informed decision about potential mining project investments. In some areas comments or other information has been the author. This information is in italics. A time-honored method to bilk the public of millions of dollars is the ubiquitous mining swindle. Since an unusually rich ore deposit, or bonanza, has historically produced enormous profits for the developer, many of us believe that we too, like the 49er, can strike it rich. The glamour attached to "discovery" create, in the imagination of some people, a relatively easy way to attain fantastic wealth. Dirt Pile Scams is a copy of consumer information presented by the Federal Trade Commission and is presented in the hope that it may assist readers in making a more informed decision about potential mining project investments. In some areas comments or other information has been added by the author. This information is in italics. Among the endless number of telephone investment frauds going on around the country, one variety is called the "dirt-pile scam." With this, a caller offers you the opportunity to invest in a gold mining operation (some of these scams are for platinum group metals and for other "strategic" metals). What you would buy is a quantity of unprocessed dirt from the mine, "guaranteed" to contain enough gold or other high value mineral to more than cover your investment. In reality, the mine contains little if any gold, and your investment is nearly worthless. Indium & 'Strategic' Metals Scams is a copy of consumer information presented by the Federal Trade Commission and is presented in the hope that it may assist readers in making a more informed decision about potential mining project investments. In some areas comments or other information has been added by the author. This information is in italics. What is indium? You may learn the hard way if someone calls and says, "This metal is the hottest investment today. Invest immediately! "If you do invest, you may join a growing number who have lost thousands of dollars to telemarketing firms that sell "strategic metals," such as indium, germanium, selenium, or cadmium. The telemarketers have sold the metals at prices that far exceed their worth. This brochure explains the sales tactics of the fraudulent telemarketing firms and how to protect yourself from them. It also lists resources you can use for inquiries or complaints. Leveraged Precious Metals Scams is a copy of consumer information presented by the Federal Trade Commission and is presented in the hope that it may assist readers in making a more informed decision about potential mining project investments. In some areas comments or other information has been added by the author. This information is in italics. Every year consumers lose billions of dollars to fraudulent telemarketing investments. Under one scheme, telemarketing companies may use high-pressure sales tactics to persuade consumers to make leveraged investments in precious metals, such as silver, gold and platinum. The companies may falsely claim such investments carry low risk and can be expected to generate high profits. However, the price of precious metals is volatile and an investment in these commodities is speculative and risky. And by leveraging, borrowing money to make the investment, the degree of risk is magnified. Before you agree to make a leveraged purchase of precious metals, read this brochure. Gold Is Where You Find It Published in the May 1997 issue of International California Mining Journal, who kindly provided the author permission to reprint. $30,000,000 scammed from duped investors in a phony mining promotion! Perhaps the Ovadya Funding Group International, Inc. Copyright 2007 14
  15. 15. largest case on record, but only one of many incidents of miners and investors falling victim to scams, lousy advice, and/or shoddy analytical workmanship. iii Mining Scams This page is a copy of consumer information presented by the Arizona Department of Mines and Mineral Resources and is presented in the hope that it may assist readers in making a more informed decision about potential mining project investments. In some areas comments or other information has been added by the author. This information is in italics. A time-honored method to bilk the public of millions of dollars is the ubiquitous mining swindle. Since an unusually rich ore deposit, or bonanza, has historically produced enormous profits for the developer, many of us believe that we too, like the 49er, can strike it rich. The glamour attached to "discovery" create, in the imagination of some people, a relatively easy way to attain fantastic wealth. Although money can be made in mining and this Department certainly encourages mining, we also have a responsibility to urge the public to exercise prudence in its investment. Too many persons have lost their hard-earned savings on an ill- advised mineral scheme. Archives are full of outrageous examples of mining scams and swindles in which the only beneficiary was a glib entrepreneur with unbounded optimism. In most cases, he disappeared before his investors realized what happened. When making an investment in any mineral enterprise, there are a number of factors or key features to consider. A checklist of significant considerations follows: 1. Title 8. Reporting Procedure 2. Sampling and Assaying 9. Security and Safety 3. Type of Commodity 10. Marketing Procedure 4. Mining Method 11. Distribution of Profit 5. Mill Site and Method 12. Tax 6. Recovery Process 13. Sequence of Development 7. Permitting 14. Engineering Reports Prerequisite to the investment in the development of a mineral deposit is legal access to the resource. The potential investor should know who ultimately owns or administers the subject mineral property and commodity. The property may be controlled by the State, Federal Government, Indian tribe, or a private individual or organization. Moreover, jurisdiction over the land surface may be separate from the jurisdiction of the underlying mineral resource. Where ownership or control of the mineral rights is severed from the surface rights, obvious legal problems can arise. If a mining claim or prospecting permit for minerals is not legitimate, the money invested is wasted from the beginning. In addition, the investor should understand basic differences between leasable and locatable minerals and lode and placer deposits. These classifications determine the type of mining agreement and/or claim established on the resource. Very specific requirements must be met and procedures followed to gain the right to develop a mineral deposit. Furthermore, encumbrances against the deposit, though legal, may be detrimental to its development. Typical examples of cloudy or illegal title to a mineral deposit include oversized claims, inappropriate claim designation and improper filing, failure to perform annual assessment or to file affidavits of labor, or location of claims on a privately held mineral estate. The investor should establish exactly what rights he has to the property in question and what conditions are imposed before he spends one penny on exploration or development. Perhaps the next major consideration in evaluating a mineral investment is the sample and assay data. One sample does not make a mine. A person who brings a rock that contains two ounces of gold per ton, to an investor, may be carrying the entire mine in his hand. One such high-grade ore specimen is not representative of the deposit. Many samples, commonly numbering in the thousands, are required to give a reasonably accurate measure of the tenor, or quality, and tonnage of the ore. Depending on the configuration and geologic setting of a mineral deposit, there are recommended scientific procedures to follow and methods to use to properly sample the mineralization. The investor should be satisfied that the samples referred to by the mine promoter were collected specifically from the property of interest and also that they were collected in a proper way. The sampling method should be adequately described and each sample site precisely located, preferably on a map. Ovadya Funding Group International, Inc. Copyright 2007 15
  16. 16. It is important not to forget the practice of deliberately salting, or adulterating, samples. Ingenious ways have been devised to fraudulently enhance the grade of samples either before or after they are collected, regardless of the method of collection. The temptation to salt is particularly appealing when dealing with a mineral of high unit-value such as diamond or gold. Once collected the samples must be properly prepared and assayed. In general, the final sample preparation and assay should be done by qualified laboratories. Assayers registered in Arizona are generally familiar with different types of ore and are knowledgeable about the proper method to test for particular metals or other components. All ores are amenable to rigid testing and comments to the effect that the ore is unassayable are simply not true. Statements belittling the methods of registered assayers, complaining for example that they never report all the gold, are immediately suspect. Modern copying devices also make it a rather simple procedure to later falsify the assayer's report. If there is any question, of course, the sample pulps (unused prepared portion) may be sent to another lab for comparison. Spectrographic analyses do not provide an accurate test of mineral samples. This type of analysis, though relatively inexpensive and useful in providing a list of components in a sample, does not yield a reliable, quantitative measure of tenor. often a billion- or trillion-dollar "ore body" is created by simply multiplying the generalized amount of each of the metals listed in a spectrographic analysis by their current market price. An ore body, however, is not that simple. At this time, there is no commercially acceptable process known whereby each element can be recovered from a deposit. A degree of skepticism should also be reserved for ores said to contain uncommon metals or minerals. Because of their rarity, these substances may command a very high price and are therefore extremely attractive to the investor. The platinum-group metals including platinum, palladium, rhodium, ruthenium, iridium, and osmium, are the darlings of the swindler. Considering their high unit-value, even minute amounts of these metals appear to be a reasonably good bet to the innocent investor. The problem here is usually the grade or tonnage, or a combination of both. The amount of platinum, for example, is generally too low to realistically consider extraction, or the tonnage is almost limited to a hand specimen. As a primary ore, platinum has never been mined in Arizona; its only production has come from trace amounts recovered in the final stage of refining copper ores. The geologic environment of Arizona, diverse as it is, does not encourage the search for platinum-group metals, graphite, cobalt, nickel, bauxite, diamonds, and a number of other commodities. As plans are drawn to mine an ore deposit, proposals are made which frequently are misinformed and ill-advised. There are innumerable examples of deep shafts and long adits driven to "nowhere". Many of these openings have been cut at great expense and with little or no evidence to suggest they would meet success. An example of a mining scheme which can be described at best as ignorant was recently sold to a number of investors in the Chemehuevis Placer District, near Lake Havasu City, Arizona. The plan called for an investor to purchase a plot of ground 60 x 120 feet in size from which 8,000 cubic yards of unconsolidated gold-bearing gravel would be dug and treated. In order to recover 8,000 cubic yards of gravel from this plot, the excavation would require vertical walls, 30 feet deep. Since loose gravel cannot be mined At a slope exceeding its natural angle of repose, approximately 45'j, the maximum amount of material that an investor could ideally and safely expect to obtain from an isolated parcel is about 62 1/2 percent of the total, or 5,000 cubic yards. No attempt was made to explain to the purchaser that, in this case, after an investment of $50,000 he would actually get less than two-thirds of what he paid for. This scenario illustrates one catch to a sales promotion involving fractional interests in a mineral property. The entire land package, comprised of all individually-owned parcels, must be mined together to insure each investor's return. An interesting twist to this story is the statement made later by the developer that only 40 percent of the aggregate was gold-bearing. Consequently the investor was now entitled to 20,000 cubic yards of gravel (to yield 8,000 cubic yards of gold-bearing material) from his plot. Since 5,000 yards was the maximum he could physically dig, this is truly adding insult to injury. There is a tendency among many of us to want to build. We want others to see our accomplishments. To some degree this attitude explains why a mine tunnel is begun with little justification. The same propensity for building might explain why a mineral processing mill is erected or a leaching facility is frequently constructed without any obvious sign of ore. Another reason these engineering marvels are installed is due to their impressiveness. The humming, turning, grinding, and screeching of equipment and the smoke and odors of a mine plant are exciting to the potential investor. He sees industry in action - his money at work - and profits just around the corner. Unfortunately, however, he is commonly one of a multitude who has emptied his pockets for a pipe dream. With a paltry amount of ore stockpiled, a dump laden with debris, or an old mine map showing the "lost" ore body, the developer spends the last dime of every investor getting ready to treat the mineral-rich rock. The $500,000 mill, designed to treat Ovadya Funding Group International, Inc. Copyright 2007 16
  17. 17. 500 tons per day, mills nothing, and the dreams of many become a nightmare. Even when good ore exists, the treatment facility is often poorly designed. Frequently its component parts are improperly matched or not sized adequately. Materials handling procedures are commonly cumbersome and energy intensive. An adequate supply of water may be lacking. Hazardous operating conditions may be present. These circumstances are a few costly examples that can shut a plant down abruptly. The recovery process is in many cases a mystery to the investor. Technological methods vary according to the metal or mineral recovered. In addition there are many variants based on the size of the mineral component, its gangue association, its state of chemical alteration, the hardness and specific gravity of the ore, permeability of the ore, and a myriad of other factors. The milling and metallurgical treatment of ores is comprised of both physical and chemical means of beneficiation. These processes though technically sound and well understood by the professional are frequently vague and confusing to the lay person. An investor not familiar with basic physical-chemical laws is easily misled. Proprietary methods utilizing secret chemicals and "black box" techniques, therefore, are often praised as technological breakthroughs. According to the developer, these so-called miraculous inventions will convert formerly worthless rock to metal-rich ore or improve, manyfold, the recovery of a metal or other commodity that heretofore had been difficult to extract. one should exercise caution when evaluating such claims. Developers often speak of 100 percent recovery. Complete extraction, however, of most constituents is essentially unknown over the long term. At the turn of the century a mining firm in Ajo built a giant retort into which ores were to be shoveled and melted. Spigots were tapped into the vessel at various locations and labeled copper, lead, zinc, gold, silver, etc. All the investor had to do, after he had helped finance the operation, was turn the spigot for the metal he desired. Understandably the entire operation fizzled. In many cases difficult technical problems are oversimplified. The ill-informed investor is merely asked to retain faith in the management and to perhaps ante a bit more so that this "minor problem" can be speedily resolved. A host of other factors should be evaluated by the prospective investor before spending money on a mine or a beneficiation plant. Proper permitting must be obtained at various stages of development from local, state, and federal authorities. In addition to routine reports required by certain government agencies, internal reports generated for management and for the investors should be factual, accurate, and timely. On-site security should be adequate to protect expensive equipment and supplies as well as the mine or plant product. Of course appropriate security measures must be taken also whenever the product, especially a high-value material such as bullion, is transported from the treatment facility. Acceptable safety procedures must be implemented and must be adhered to rigidly from the start to finish of any operation. Even after termination of operations, it is imperative that hazardous materials be properly disposed of and unsafe conditions, such as open shafts, be resolved. Proposed or actual marketing of the mine or mill product should be reviewed thoroughly by the investor. There may be assessed charges for further treatment of the product. There may be by-product credits returned to the miner. The investor should also be aware of the involvement of any intermediate sales agents and their remuneration. Another obvious consideration is the distribution of profits. What liens, including ownership 'royalties, loan payments, and rental fees, must be deducted from the gross to determine the net profit? Are estimates of operating expenses and pro- forma statements realistic? The investor should be satisfied with the form of payment whether it is in cash, stock, or in- kind. Like other high-risk investments, mine and mineral developments are often subjected to careful scrutiny by the Internal Revenue Service. Beware of accelerated tax write-offs. Such an advantage was one of the attractions in the Chemehuevis Placer scam referred to earlier. Supposedly the investor would receive a $50,000 write-off on his tax statement the first year of his investment by merely paying an advance of $10,000 and signing a promissory note for an additional $40,000. (The prospectus projected within four years a net income, based on gold production, of $139,000.) In this particular case, the courts apparently upheld an IRS ruling disallowing the tax deduction. Reportedly the original developers of this program, some $3 million richer, are now unavailable. In every mineral development there is a logical sequence of events with which the enthusiastic, yet uninitiated, investor may be unfamiliar. Each project can be broken into phases, the completion of which can be evaluated before expending large sums of additional funds. There is no legitimate reason for throwing good money after bad. Classic examples exist which have expensive land being purchased on the basis of someone else's assays or a costly mill being constructed without proven ore. Engineering reports are useful tools that will assist the mine developer and investor. Decisions to pursue a project into the next stage, and in a particular manner, will be made easier and more logically after consultation with the appropriate Ovadya Funding Group International, Inc. Copyright 2007 17
  18. 18. professional engineer, whether a geologist, mining engineer, or metallurgist. Other professional assistance such as financial and legal is generally warranted. In general, professional evaluation and advice should be sought outside of the developing organization. Principals with the firm and other vested partners, though well intentioned, may write overly optimistic reports. Statements, for example, referring to the attractiveness of a deposit because of its close proximity to a famous producer or the historically proven improvement of ore grade with depth in the mining district may have the ring of authority but are often pure speculation. Such reports frequently speak glowingly of questionable assets that may be virtually worthless, e.g., raw mill sites, dilapidated buildings or sheds, and rusted, dismantled equipment. Past production records may be doctored, and projected production/cost data may be presented in an unrealistic manner. Profits are often inflated or guaranteed in such company-prepared prospectuses. it is recommended, therefore, that most professional advice be obtained from consultants who have no financial connection with the company principals, the property, the mineral technology to be employed, or any part of the proposed operation. The Arizona Department of Mines and Mineral Resources, with offices in Phoenix and Tucson, is perhaps one of the first places an investor should go seeking information. Knowledgeable, qualified engineers can provide him existing historical data on numerous properties and discuss solutions to problems he may have. Lists of registered assayers and engineers are available at the department. In addition, an excellent reference library is maintained, as well as a museum in which the interested individual can obtain hands-on knowledge of rocks and minerals. While it is obvious that venture capital is needed to start a mine or mineral project, and the Department promotes the development of Arizona's mineral resources, we believe it is essential that the investor be as well informed as possible. Under the best of circumstances mining is a risky business and we should never tolerate fraudulent practices within the industry. An informed investor, therefore, is better prepared to take the risk without being fleeced at the same time. Adapted from Arizona Department of Mines and Mineral Resources Circular No. 11, January 1986, By Michael N. Greeley, Mining Engineer iv This page is a copy of consumer information presented by the Federal Trade Commission and is presented in the hope that it may assist readers in making a more informed decision about potential mining project investments. In some areas comments or other information has been added by the author. This information is in italics. Facts for Consumers from the Federal Trade Commission Dirt-Pile Scams: Mining for Gold -- December 1993 Among the endless number of telephone investment frauds going on around the country, one variety is called the "dirt-pile scam." With this, a caller offers you the opportunity to invest in a gold mining operation (some of these scams are for platinum group metals and for other "strategic" metals). What you would buy is a quantity of unprocessed dirt from the mine, "guaranteed" to contain enough gold to more than cover your investment. In reality, the mine contains little if any gold, and your investment is nearly worthless. Unfortunately, consumers from all walks of life have invested in these dirt-pile scams and were cheated out of millions of dollars. This fact sheet tells you how to recognize the scam, how to protect yourself, and what to do if you become a victim. How Dirt-Pile Scams Work Although there are many versions of this scheme, most dirt-pile scams have similar features. Typically, a promoter will either lease or buy a mining claim (a tract of land that legally can be mined) in one state and then set up "boiler room" sales operations in several other states. The mining claim, company headquarters, and boiler rooms are purposely located in different states to make it more difficult for law-enforcement officials to locate and investigate the company's activities. Usually, a boiler room is a rented space filled with desks and telephones, where experienced salespeople call hundreds of potential investors like you. These callers use high pressure tactics to sell you unprocessed dirt, also called "ore." Preying on most people's limited knowledge of "ore," they make false and exaggerated claims about the precious-metal content. A central feature of the dirt-pile scam is that you will be asked to invest several thousand dollars upfront, but will not be entitled to a return on your investment for at least one to three years. This gives the promoters time to get money from many investors, before anyone suspects foul play. There are a number of twists to this scam. In one variation, you buy the ore from the mining claim for one fee, then, for a second fee, you buy the services of an "independent" mining contractor who will process the ore and extract the precious metal. You will not be told, of course, that the contractor is also part of the scam. In another variation, you pay one fee for Ovadya Funding Group International, Inc. Copyright 2007 18
  19. 19. both mining and refining the ore. Some investment schemes allow you to make monthly installment payments to the mining company. The sales pitch may change slightly, but the basic message is the same--pay now and receive a substantial return later. If you express interest in investing, the salesperson will follow up the phone call with a prospectus or a company publication. It often is a slick-looking brochure, which promoters hope will increase the credibility of their offering. The brochure may contain photographs of the mining site with mining equipment on it, a map of the area, pictures and resumes of company officials, and references for you to call. The brochure also may include a report from an assayer, one who analyzes a sample of dirt from the mining claim to determine the precious-metal content. Often the report will be from either a fraudulent assayer who inflates the amount of precious metal found in the ore, or from a legitimate assayer who is given a "salted" sample, one that contains added amounts of the precious metal. (Another variation used to implicate a legitimate assayer is to send him a concentrated or heavy mineral sample for assay and then fail to disclose the concentration ratio in the information sent to you. Remember also that "fire assays" are not normally performed on samples of placer gold.) The packet may include a contract for you to sign and return, locking you into the investment. If the caller senses any reluctance, you may be offered a "risk-free" investment to clinch the deal. Your investment will be "guaranteed" to contain a minimum quantity of precious metal per ton of ore, and, if your claim does not produce the specified amount of precious metal, the company will refine additional ore to satisfy the terms of the guarantee. Some companies or salespersons even will promise to make up the difference out of their own pocket. Once you have invested money in a dirt-pile scam, you may receive periodic progress reports or "lull letters." Their purpose is to keep you up-to-date on the fictitious progress of the mining operation and to keep you content with your investment. Because the mines often are not located in the state where you live, it is unlikely that you will visit the mine. If you do visit, you may recognize the worthless value of your investment and demand a refund. Promoters may willingly refund your money, possibly with newly invested money, in order to avoid complaints to law-enforcement officials. In some cases, promoters actually haul equipment out to the mining site and hire temporary employees to make it look as if work is in progress. (One of these scams "recycled" the "ore" by taking it from the mine during the day and hauling back at night.) Finally, when it is time for a return on your investment, if the promoters are still around, they will conveniently blame faulty equipment, bad weather, a labor shortage, or even the Government for any delay. They will assure you that they will resolve all problems quickly. Since you have already put considerable time and money into this investment, you may be satisfied to wait for a while. In the meantime, the promoters try to get more money from new customers or to get safely out of town. No matter how these scams unfold, they always end the same way: You are left with nothing--no capital and no profit. How To Protect Yourself The typical dirt-pile scam involves a highly sophisticated interstate network of swindlers. By the time you suspect the investment may be phony, it could be difficult to locate the promoter, the project manager, the salespeople, or anyone else connected with the company. Because the crux of the scam requires you to wait at least a year to realize a return on your investment, promoters are often long gone by the time law-enforcement officials are alerted to the scheme and can begin an investigation. The best protection you have is not to invest in a dirt-pile scam in the first place. The following suggestions may help you avoid losing money in a dirt-pile scam: Be wary of unsolicited investment opportunities. Be suspicious of guaranteed, high-return, risk-free investments in precious metals. If this is such a great investment, why isn't the company getting traditional financing from a bank (or raising the money from the stock market) instead of from you, a total stranger? The market for gold and other precious metals is unstable; be wary of any exaggerated claims. Few legitimate companies can afford to substantially undercut the market price for precious metals. Be skeptical of extraordinary claims, such as "secret formulas" for extracting otherwise unrecoverable precious metals from dirt. (This method appears to be especially prevalent in platinum group and "strategic" metals) Ask yourself, why am I hearing about this for the first time over the telephone? Don't let telephone salespeople convince you to invest on the spot. A person selling a legitimate investment opportunity will allow you to take some time to look over the company literature and to check out the credibility of the claims with someone whose financial advice you respect. Ovadya Funding Group International, Inc. Copyright 2007 19
  20. 20. Don't be taken in by slick brochures and reports by so-called experts. The claims made in the brochure are only as good as the company that makes them. Don't be impressed by statements that the mining claim is on land managed by the Bureau of Land Management or the Forest Service. It is relatively simple to file a claim on federally managed land, but that does not mean the land is worth mining. Check out all the claims made in the sales call and in the written materials. Call the state Bureau of Mines in the state where the mine is located to get general information about the mineral content in the area to be mined. Get an independent, credentialed geologist (or a Certified Minerals Appraiser, or a Registered Mining or Metallurgical Engineer) to inspect the written materials. Call the state securities office in your state or in the state where the mine is located. They can tell you if the promoter has violated state securities laws in the past. When in doubt, say no. If you are not completely confident that you are investing in a legitimate offer, do not take a chance. Once a swindler has your money, it is very hard to recover it. What To Do If You Are A Victim Of A Dirt-Pile Scam If you thought you were investing in a legitimate mining operation and it turned out to be a dirt-pile scam, speak up. First, try to contact the mining company and attempt to get your money back. If you are not successful, report your problem to the state securities agency, state mining agency, Better Business Bureau, and Attorney General's office in your state and in the state where the mine is located. If law enforcement agencies are already looking into the company, your information will help in an investigation. If they do not know about the problem, your information may alert them to the need for one. You also may contact the Federal Trade Commission. Write: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. Although the FTC generally does not intervene in individual disputes, the information you provide may indicate a pattern of possible law violations requiring action by the Commission. For More Information Additional information about telephone investment scams and how to protect yourself is found in the FTC fact sheet Telephone Investment Fraud. For a free copy, contact: Public Reference, Federal Trade Commission, Washington, DC 20580; 202-326-2222. You also may request Best Sellers, which lists all of the FTC's consumer and business publications. FTC CONSUMER & SMALL BUSINESS ADVISORY - PUBLIC DOCUMENT Please note that all Government Consumer Information Brochures appearing at this site are public domain documents and may be freely copied at will. We claim no copyright in the content of these documents. Comments and information in italics has been added by the author. v This page is a copy of consumer information presented by the Federal Trade Commission and is presented in the hope that it may assist readers in making a more informed decision about potential mining project investments. In some areas comments or other information has been added by the reader. This information is in italics. What is indium? You may learn the hard way if someone calls and says, "This metal is the hottest investment today. Invest immediately! "If you do invest, you may join a growing number who have lost thousands of dollars to telemarketing firms that sell "strategic metals," such as indium, germanium, selenium, or cadmium. Many of these firms are located in Canada. The telemarketers have sold the metals at prices that far exceed their worth. This brochure explains the sales tactics of the fraudulent telemarketing firms and how to protect yourself from them. It also lists resources you can use for inquiries or complaints. Part I: "Buy Now!" The scam unfolds like this. A telemarketer calls offering you indium as an investment that promises little risk and high returns. If you're reluctant to buy, the telemarketer may send you an impressive-looking brochure or even a video cassette that exaggerates indium's worth. Indium is a byproduct of zinc. It's used in digital screens (on watches and computers), architectural glass, and fire sprinklers. Because indium also is used by the defense industry, it sometimes is called a "strategic metal. "The term "strategic metal" may be confusing to the average investor. It may sound glamorous, and the fraudulent telemarketer may capture your attention by talking about new high-tech applications for indium. These telemarketers may claim that the demand for indium is growing while the supply is dwindling. They may explain that the U.S. imports most of its indium and that the overseas producers are threatened by political or economic problems. Ovadya Funding Group International, Inc. Copyright 2007 20
  21. 21. These claims are false. There is no shortage of indium, and there are no forces that are driving up the price. Foreign suppliers of indium include countries like France, Italy, and Canada. Indium currently is selling for about $5 per ounce, but telemarketers have sold it for $80 or more for that amount. Worse yet, it's unlikely investors could ever resell their indium at any price. First, indium is an industrial-use metal, not an investment metal. It is not traded like a commodity or stock. Second, even if you found a company that uses indium, it probably would not be interested in buying your small supply. Because you would not be able to guarantee the quality of your indium, a company probably would not want to pay to do their own analysis. Part II: "Buy More!" If you buy some indium, your name may be traded on what is called a "sucker's list." The telemarketing firm that sold you the indium, or a different one, will call to give you updates on indium's latest selling price. Of course, each update will show a higher selling price. Because you believe the price of indium is rising, you may not suspect any problems with your investment. Most likely, one or more companies will try to pressure you into buying more indium to close a deal with an alleged buyer of your supply. For example, if you have 300 ounces of indium, you may be told that the "buyer" only wants to purchase quantities of 500 or more. However, if you buy more indium, you will only lose more money. The so-called "buyer" will disappear. Part III: "Good-bye" If you ever discuss selling your indium with the telemarketers, they may stall your action by telling you the price hasn't peaked yet or that you still need more indium for your portfolio. If, at some point, you discover you paid too much for the indium, you may find that the sales representative who was so eager to sell you indium before is no longer available to talk to you. Your phone calls may not be forwarded or your messages returned. Some companies often ask for the purchase money by wire because it's difficult to trace who receives the transfer. Others may shut down quickly, running with the money that investors have paid. It may be impossible to get your money back, especially if you're dealing with a foreign company. Before Parting with Your Money Be extremely cautious if someone calls offering to sell you indium or any other strategic metal as an investment. For general information, or to register a complaint against a telemarketing company, you may contact: National Fraud Information Center Consumer Assistance Hotline 1-800-876-7060 9:00 a.m. - 5:30 p.m. EST, Monday-Friday You also may file a complaint with the agencies listed on the next page. When writing to register a complaint, include a complete history of your involvement with the company. You should enclose copies of all letters, brochures, or other material you received from the firm in addition to any correspondence you may have sent. Federal Bureau of Investigation. Check your telephone directory for your local FBI office Federal Trade Commission Telemarketing Fraud, Room 200 6th Street and Pennsylvania Ave., NW Washington, DC 20580 Please note that all Government Consumer Information Brochures appearing at this site are public domain documents and may be freely copied at will. We claim no copyright in the content of these documents. vi Leveraged Precious Metals Scams This page is a copy of consumer information presented by the Federal Trade Commission and is presented in the hope that it may assist the reader in making a more informed decision about potential mining project investments. In some areas comments or other information has been the author. This information is in italics. Every year consumers lose billions of dollars to fraudulent telemarketing investments. Under one scheme, telemarketing companies may use high-pressure sales tactics to persuade consumers to make leveraged investments in precious metals, such as silver, gold and platinum. The companies may falsely claim such investments carry low risk and can be expected to generate high profits. However, the price of precious metals is volatile and an investment in these commodities is speculative and risky. And by leveraging, borrowing money to make the investment, the degree of risk is Ovadya Funding Group International, Inc. Copyright 2007 21
  22. 22. magnified. During recent years, many consumers who have invested in these programs have lost a high percentage of their investments. Before you agree to make a leveraged purchase of precious metals, read this brochure. How the Scams Works A salesperson may call urging you to invest in precious metals. The caller may predict that the market price of metals is about to skyrocket during the next few days or weeks and that if you don't act now, your investment opportunity may be lost. Claims may be made that your investment can be expected to generate substantial profits, with little risk, in as little as six months. The salesperson may explain that, under their investment plan, you are to pay a portion of the cost of the metal in cash, often 20 percent, and a financial institution will loan you the balance. The financial institution will arrange for your metal to be held as collateral for the loan. During the sales pitch, you also may be given information about program fees and commissions. But, in fact, FTC cases against such telemarketers suggest that many of the fees and commissions charged were misrepresented or concealed and that fees ate up the majority of the money that the consumers actually paid into the program. In addition, consumers often do not receive written account statements that completely disclose program fees. Besides potentially losing your initial cash outlay to commissions and fees, a highly leveraged investment increases the risk of an equity call. An equity call occurs when changes in the price of the metals or program fees causes the value of your investment to fall to where the financing company considers your metal insufficient collateral to secure the loan. Upon receiving an equity call, you must decide whether to put more money into the investment or have the financing company sell the metal in order to pay off the loan. Either way, you are likely to lose some or all of your investment. How to Avoid Losing Your Money Consider the following precautions if you receive an investment solicitation. l) Be skeptical about any unsolicited phone calls about investments. You may be on a list that contains the names, addresses, phone numbers, and descriptions of people who have responded before to telephone solicitations regarding questionable schemes. 2) Avoid high-pressure sales tactics. Sales presentations that urge you to buy now or you'll lose your investment opportunity are clues to a possible fraud. If you feel pressured, simply hang up the phone. Ask the caller to send you information about the company and its operation and verify the data. Check out the company's offer with someone whose financial advice you trust. 3) Contact the consumer protection agency, Attorney General, and Better Business Bureau in your state and in the state where the company is located to learn if they know of any consumer complaints against the firm. What to Do If You Feel Victimized If you believe you are a victim of a fraudulent precious metals investment, first contact the company and try to get your money back. Write a complaint letter to the company that sold you the metal and to the company that financed the transaction. If possible, direct your complaint personally to the highest ranking officials in the company. Also, report your problem to your local consumer protection agency, state Attorney General, and the Better Business Bureau. In addition, you may wish to contact the National Fraud Information Center (NFIC), Consumer Assistance Hotline at 1- 800-876-7060, 9 a.m. - 5:30 p.m. EST, Monday - Friday, to report the company. The NFIC is a private, non-profit organization that operates a hotline to provide services and assistance in filing complaints. You also may file a complaint with the FTC by writing to: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. Although the FTC generally does not intervene in individual disputes, the information you provide may help to indicate a pattern of possible law violations requiring action by the Commission. Please note that all Government Consumer Information Brochures appearing at this site are public domain documents and may be freely copied at will. We claim no copyright in the content of these documents. Ovadya Funding Group International, Inc. Copyright 2007 22
  23. 23. vii "Gold Is Where You Find It" (But, Be Sure You Really Found It) by Paul J. Lechler, Ph.D, Chief Geochemist Nevada Bureau of Mines and Geology Published in the May 1997 issue of International California Mining Journal, who kindly provided permission to reprint it. $30,000,000 scammed from duped investors in a phony mining promotion! Perhaps the largest case on record, but only one of many incidents of miners and investors falling victim to scams, lousy advice, and/or shoddy analytical workmanship. During my long tenure as an analytical geochemist, I have come across many scams along with many confused prospectors and investors. Analytical geochemists are professionals who, after many years of college, two or three degrees in chemistry, geology, or the hybrid-geochemistry, are skilled at determining the concentrations of elements (such as gold, silver, platinum, copper, etc.) in rocks, minerals, soils, sediments, water and vegetation. Natural Earth materials are very complex, containing at least trace amounts of all of the naturally-occurring 92 elements on the periodic chart from hydrogen (atomic number 1) through uranium (atomic number 92), except for technetium (number 43, which has not been found to occur naturally) and promethium (number 61, also missing from Earth's crust). The complexity of these natural materials makes their analysis a difficult task, requiring extensive knowledge, experience, and expensive instrumentation. I have tried to help people whose, often times, very limited knowledge of minerals has gotten them in over their heads in one situation or another. Some people simply suffer from the misconception that, with a little financial investment and/or a very basic knowledge of prospecting and mining, one can successfully find a valuable mineral deposit just waiting for discovery. This is akin to a pot of gold at the end of the rainbow or finding buried or sunken treasure. The problem, I have found, is that when exploring a new field of knowledge we don't recognize just how ignorant we are on this subject. We find several types of people involved in mining imbroglios or promotions: (1) the classic con-artist who intentionally tries to sell worthless mining property, ineffective equipment or technology. (2) the prospector with marginal knowledge who inadvertently promotes a worthless property or process because he knows no better, (3) the devious laboratory owner, who intentionally reports high concentrations of valuable metals to encourage customers to continue prospecting, sampling, and bringing in analytical business, and (4) the incompetent assayer or self-taught, but incompetent, extractive metallurgist who inadvertently causes others to develop a worthless property or process through erroneous analytical results. It is often very difficult to convince people who fall victim to scams or erroneous analytical conclusions that what they are being told is wrong. But this, however, I have come to understand, is because the victim wants to believe that there are riches to be had. There are frequent claims that certain ores cannot be assayed by conventional methods. The story generally goes that the materials contain fabulous, ore-grade concentrations of precious metals but, because of some peculiarity, conventional assaying methods won't record their presence and "special" protocols or treatments are needed. Many of these claims and scams are recurring and one must have patience to deal with them over and over again. This problem of promoting worthless properties and procedures is a very old one. Mark Twain, in his book Roughing It, tells an interesting and not uncommon vignette: "Assaying was a good business, and so some men engaged in it, occasionally, who were not strictly scientific and capable. One assayer got such rich results out of all specimens brought to him that in time he acquired almost a monopoly of the business. But like all men who achieve success, he became an object of envy and suspicion. The other assayers entered into a conspiracy against him, and let some prominent citizens into the secret in order to show that they meant fairly. Then they broke a little fragment off a carpenter's grindstone and got a stranger to take it to the popular scientist and get it assayed. In the course of an hour the result came - whereby it appeared that a ton of that rock would yield $1,284.40 in silver and $366.36 in gold! ... Due publication of the whole matter was made in the paper, and the popular assayer left town 'between two days'." Ore Vs Mineralization, a Fundamentally Critical Concept Mineralization does not an orebody make. Water, for instance, contains at least trace amounts of all the elements, including gold. The critical point, however, is that given current technology, one cannot profitably extract gold from seawater or most other waters because the concentration of gold is too small. It has been tried repeatedly, notably by the Germans during WW1 to help fund their war machine. The problem is, it has always cost more to process the water than the value of the gold extracted. Ovadya Funding Group International, Inc. Copyright 2007 23
  24. 24. Let's analyze this critical concept further. Natural processes recurring over the history of the earth have caused some minerals to become concentrated in extraordinary amounts in rocks in certain places. These areas of concentration of minerals are where we go to extract minerals at a profit. Finding areas of exceptional mineral concentration is the realm of prospecting or mineral exploration. In order for the extraction of minerals to be profitable, they must generally be: (1) highly concentrated (2) located near the earth's surface, (3) in an environmentally insensitive location (4) with accessible water, power, hospitable climate and transportation. This type of mineralization is referred to as an orebody because it can be processed and the minerals sold for a profit. The discrimination between mere mineralization and an orebody also requires three dimensional information about the volume of mineral-rich rock available for extraction. This requires drilling, tunneling, or trenching, combined with sampling and assaying the material. This is the only way to determine how many tons of mineralized rock are present and at what concentrations (and hence, value) the metals are present. The costs to extract the minerals from the ore must be determined. The value of the minerals in the ground, minus the costs to extract the minerals, minus the up-front costs of prospecting and permitting the mine, minus the end costs to decommission the mine and reclaim the area, tells us how much net profit might be available over the life of the mine. Only at this point can we rationally make a decision whether or not to pursue the project or investment. Some Recurring Assaying Scams Assaying scams are essentially limited to the precious metals, largely gold, platinum, and rhodium. There are reasons for this. Many elements are mined from the earth, but only the very valuable (precious metals) can be profitably mined at very low concentrations. At these low concentrations, the precious metals or minerals are generally very finely and widely dispersed throughout the rock. They are so finely dispersed that they are often difficult or impossible to see visually with microscopes, even when their concentrations are high enough to be mined profitably. This forces us to rely totally on the results of chemical assays to determine whether or not economic concentrations of these precious metals are present. This is where the incompetent and the unscrupulous find fruitful ground to err, to misconstrue, and to deceive. These problems and scams do not arise with other metals because the erroneous or fraudulent assay results could quickly be verified or dismissed through microscopic examination of the ore by a competent mineralogist, either professional or amateur. Prospectors who are on really tight budgets (and there are many) will often try to perform assays at home because they cannot afford the ten dollars or so that it costs to get a commercial assay done. When prospecting for precious metals, assays are necessary or one is limited to looking only for very high grade deposits in which the metals are visible. With home assays people often run astray. Assaying scams often involve convincing the clients that the "ore" in question is complex or, for some other reason, cannot be assayed by normal methods. Often some special pretreatment is required (such as adding a roasting step and then treating the ore with water, leaching first with sulfuric acid, subjecting the ore first to an arc similar to an electric welder, pretreating with sugar or salt, etc.) before fire assaying the sample. Sometimes it is said that the ore cannot be fire assayed at all because the gold is in a volatile form which will be burned off from the sample and lost during fire assaying. While this is largely untrue, such samples can always be analyzed by standard wet-chemical methods which do not involve heating the samples in high-temperature (1,050°C) furnaces. Good wet-chemical methods of determining the quantity of gold in a sample are used routinely by competent laboratories. The incompetent or unscrupulous, however, do not use the standard, scientifically-established methodology, but modify methods until they get results they want - however inaccurate they may be. Laboratory-Specific Ore-Grade Assays Certain laboratories repeatedly produce unreasonable data. Professionals in the mining industry have come to be leery of, if not simply to dismiss, assays from certain laboratories. Several years ago, the Nevada Securities and Exchange Commission (SEC) asked this writer to help determine how one laboratory was apparently salting samples from a cinder-cone property that they were promoting. After being unable to duplicate the results produced by the laboratory in question through umpire assays at other laboratories, the SEC visited the lab and videotaped their procedure for assaying samples. They then obtained a sample of all chemicals that were added to samples during the course of the assay so that I could check them for gold contamination. Had I detected contamination of gold in one of the chemicals (which I did not), it could have been argued that the "salting" was inadvertent and that we were dealing with mere incompetents. Results of my contamination check lead to the conclusion that gold was being added covertly and intentionally and that a scam was being perpetrated on investors. Some Recurring Property Scams Property promoters are not stupid people. They often conceive their scams so as to be at least partially believable, even to knowledgeable professionals. The difference between the typical victims of these scams and the knowledgeable Ovadya Funding Group International, Inc. Copyright 2007 24
  25. 25. professional is that the professional knows how to quickly evaluate and verify or discredit the claims. He does this by calling on extensive knowledge about geology and ore deposits and through the use of the scientific method to avoid being confused and duped by the promoter. A couple of examples which attempted to promote platinum-bearing properties in southern Nevada and a silver property in Texas, will illustrate the nature of these endeavors to deceive and extract money from investors. Playa Deposits/Moapa Lake Bed Deposits Southern Nevada is one of the few areas in the United States where platinum mineralization is known to occur. The mineralization occurs in the lower elevations of a couple of mountain ranges both southwest and northeast of Las Vegas. Recurring property promotions occur in the valleys below these known occurrences, with the promoters trying to convince investors that platinum has washed out of the exposed occurrences in the ranges and has built up to ore grades in the adjacent, closed, basins in the valleys. In the semi-desert West, these normally-dry lake beds in closed basins are called playas, and playa scams concerning gold and the platinum-group elements (platinum, palladium, rhodium, ruthenium, osmium, and iridium) recur on a regular basis. The Moapa lake bed deposits, regionally adjacent to the platinum-bearing Bunkerville mining district northeast of Las Vegas is a favorite area in which to attempt to promote platinum properties. Although it is at least possible that such enrichment processes occur, there is no reliable evidence that they have. Colleagues and I have assessed and discredited these scams more than once. The Grand-Daddy of Them All In 1976 there occurred perhaps the boldest and richest mining scam ever recorded. The amount extorted from eager investors was estimated to have exceeded $30,000,000! Three con artists, McCord, Deaton, and Wolstencroft, enticed investors with a phony, proprietary extraction technology which was to extract substantial silver from vast reserves of ore near Llano, Texas (never mind that there was actually no silver in the rocks to be extracted). Up-front money was needed from the investors to secure the mining property in Texas and attract a $10,000,000 loan with which to build the needed refinery. Investors were told that they would double their money in one week and some were enticed to invest substantially. A widow from the South invested $450,000 and a former Chrysler Corporation president invested $150,000. Needless to say, investors never realized any profit from their investments and, in fact, lost essentially everything that they had invested. Was it the con artists' skill and charisma or the investor's eagerness to see unbelievable returns, or both, that resulted in this debacle? The money was funneled into a bank In the Bahamas where it was essentially out of reach of American officials who eventually were brought into the scam to investigate the broken promises. Other favorite areas in which to try to deceive investors have been basaltic cinder cones, lavas in general, Mancos Shale, Humboldt Sink, Nevada platiniferous brines, high-gold content water from any area, etc. The Problem of Quartz Veins I have probably seen more prospectors confused by quartz veins than any other type of mineralization. There are many examples in the western United States where prospectors found outcropping quartz veins containing gold. Many times, however, while the quartz vein continued underground its gold content did not. Prospectors happening upon these prospects will grab residual high-grade samples left in the wall of the hole. Thinking they have found a valuable vein they will begin mining the quartz at depth only to find it contains no gold. The problem is that geologic processes that have deposited quartz in the fracture in the rock are different than the processes that normally cause gold to be deposited along with the quartz. Because of the difference in depositional mechanisms for quartz and for gold, the fracture may be filled with quartz to great depths but the gold may only have been deposited in the shallow portions of the vein. Prospectors can waste a lot of time and money unjustifiably pursuing gold in barren quartz veins below productive horizons. Devious promoters can likewise make a worthless vein appear to be exceptionally valuable by guiding you to sample remnants of the gold-rich, shallow vein material and indicating that the quartz vein continues with depth. The Scientific Method and Reliable, Unambiguous Data: How to Avoid Being Duped! Scams generally involve attempts to convince someone that a rock is enriched in gold and/or other precious metals. Using principles of the scientific method, we can confirm or discount this assertion in an unambiguous, accurate, and reliable way. Let's look at a probably familiar analogy to review how the scientific method works and why we have come to trust its results. We are probably all familiar with medical studies which make use of the scientific method. We have probably all heard (more than once) about blind studies in which one experimental group is administered a new medicine while another Ovadya Funding Group International, Inc. Copyright 2007 25
  26. 26. group is not. The researchers are looking for differences between the two groups which are unambiguously attributable to the treatment. So the scientists have gone through the mental exercise of hypothesizing that a medicine will cause a particular effect in patients and then designing an experiment to demonstrate conclusively that the medicine does or does not cause the anticipated effect. These scientists go to great lengths to be certain that the effects that they see or measure between the two groups are the result of the treatment alone. In a similar way, in establishing whether or not a rock contains gold, we must take steps to ensure that the results of our assay accurately reflect only the presence or absence of gold. We generally do three things during the analysis. First, we carry a blank through the entire analysis, treating it as though it were a sample by adding to it all the chemicals that we add to the real sample in the course of the assay. In this way, we would measure any small amount of gold that we might inadvertently add to the sample because we would also add it to the blank as we add the chemicals to them both. Secondly, we carry a standard along through the analysis. This is a natural sample, similar to the unknown, in which we already know the gold content with high confidence. At the end of our analysis, after treating the standard just like another unknown sample, we expect to find the certified amount of gold in the standard, indicating that our assaying method was an accurate one. Finally, we analyze more than one replicate of each sample, carefully assessing the variation in results between the duplicate or triplicate determinations of gold in a given sample to ensure that we can repeat our results time after time. After having taken these precautions during the conduct of our analysis we have high confidence that we know the concentration of gold in the unknown sample. We have monitored the analysis for inadvertent contamination by including a blank, we have verified the accuracy of the analysis by including a standard (or even several different standards), and we have demonstrated the reproducibility of our method. We can further assure ourselves that we have the proper answer by conducting the analysis with two entirely different methods. All methods should give similar results. Final Advice Before investing money in any mining-related endeavor, seek advice from a knowledgeable friend or hire a consultant to help you assess the risks inherent in the venture. Spending a little money on a consultant in the beginning may save a lot of money in the long run. If you are having material assayed, take it to a reputable laboratory (make some telephone calls to mining companies, state geological surveys, the Better Business Bureau, etc.). If you think that you have found samples that have ore grade concentrations of precious metals in them, have them re-assayed at a second commercial laboratory to confirm the results. If the two laboratories do not agree within some reasonable margin of error, after you have provided them with identical , carefully split samples, seek a third or fourth assay, until you are satisfied that you know what the concentrations are with a high degree of confidence. While many are attracted to mining because of the potential to obtain riches from rocks, prospecting or investing in mining is an expensive and risky venture. It is often said that if it sounds too good to be true, it probably is. But in this business, it might not be either because there are indeed some valuable ore deposits left to be discovered. Proceed with great care, and seek assistance if necessary. Be systematic, redundant, and apply liberal doses of common sense. viii What Is Minerals Appraisal-Valuation? Ovadya Funding Group International, Inc. Copyright 2007 26

×